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New SEC Rules to Expand Disclosure Requirements for Advisors, Including Social Media

The U.S. Securities and Exchange Commission (SEC) continues to increase its oversight of investment advisors and asset managers. Last week, the SEC announced that it adopted amendments to the Investment Advisers Act that will increase the recordkeeping and reporting requirements for investment advisors. Advisors will now have to provide additional information on their separately managed account business, and other aspects of their business, including the use of social media.
According to the top securities regulator, Chair Mary Jo White, the SEC wants to have a better understanding of the risk profile of each advisor and the industry as a whole; therefore, there will be a series of rulemakings to enhance the SEC’s oversight of the asset management industry.
Starting October 1, 2017, not only will investment advisors need to report all their websites and social media accounts, including the addresses of each account, but also report their most current use case of these social media accounts and websites on Part 1A of the Form ADV. The burden is on the advisors to update their Forms every time their use case of social media and websites change.
These latest amendments are an expansion of last year’s amendment that only required social media account addresses to be included on the Form ADV.
The SEC will use this information for investment advisors exams. It also will compare all of the information that advisors disseminate across all of their public-facing social media accounts, as well as to identify and monitor new platforms.
Additionally, advisors must list all their social media accounts that are used to promote their business, including accounts that target investors outside of the U.S. However, if an account on a social media platform is used solely to promote the business of an affiliate or affiliates that are not advisors registered with the Commission, the account does not need to be disclosed on the Form ADV.
The information reported will only affect accounts that the advisors control, and not accounts where the advisor does not control its content (such as Yelp or Angie’s List). Employees that are not regulated also are exempt.
The SEC explains that these disclosure requirements  are not only helpful for investors but also help the Commission to improve its understanding of how advisors use social media to communicate with current and potential clients.
For investment advisory and asset management firms, it is now more crucial than ever to have the proper monitoring and recordkeeping tools in place to ensure proper oversight of information shared on social media by their advisors. They should revisit – and in many cases, increase – their oversight and compliance practices, including advertising and communication on social media. Not doing so could result in serious sanctions, as evidenced by the 13 advisory firms that were recently fined for spreading false advertising of product performance without verifying the information reported.

Yasmin Zarabi

Yasmin is responsible for Hearsay's legal affairs including commercial, compliance, regulatory and privacy matters. She is a thought leader in compliance for financial services, has been published in industry press and speaks at events around the world.

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